3. Using ROA to determine asset-intensive/asset-light companies Return on assets can be used to gauge how asset-intensive a company is: The lower the return on assets, the more asset-intensive a company is. An example of an asset-intensive company would be an airline company. The higher ...
Evaluate Return on Asset to gauge how effectively a company uses its assets with The Strategic CFO®.
Since RONA depends on the profit margin and the amount of asset deployed by a company, this ratio should always be looked at from peers in the same industry. In the above example, GM has been able to reduce its cost significantly, while maintaining its core-assets. However, the RONA level...
The formula used to calculate the return on assets (ROA) can be found below. Return on Assets (ROA) = Net Income ÷ Average Total Assets The numerator is also net income, but the distinction is the denominator, which consists of the average value of a company’s entire asset base. The...
This is a major asset component that investors look at. In other words, the RONA is a profitability ratio. It tells investors how much profit a company generates from every dollar of assets it owns. But it doesn’t consider the return on assets. Return on Net Assets Formula The return ...
So what is the return on asset formula? You can easily calculate a company’s ROA by using the following equation: Return on Total Asset Ratio = Net Income / Total Assets A company’s net, after-tax income can usually be found on its income statement for a given period, while its tota...
revenue is a useful operational metric, but comparing them to the resources a company used to earn them cuts to the very feasibility of that company's’ existence. Return on assets (ROA) is the simplest of such corporate bang-for-the-buck measures. Higher ROAs indicates more asset effic...
One of the greatest issues with the return on assets ratio is that it can’t be used acrossindustriesbecause companies in one industry have different asset bases from those in another. The asset bases of companies within the oil and gas industry aren’t the same as those in the retail indu...
Return on Assets Formula To calculate ROA, use the general formula provided below: Note: Professional accountants will calculate ROA using a more complex formula known as the 'DuPont Disaggregation.' Return on Assets Formula Example Say that a company has $10,000 in total assets and generates $...
The return on assets ratio formula is calculated by dividing net income by average total assets. This ratio can also be represented as a product of theprofit marginand thetotal asset turnover. Either formula can be used to calculate the return on total assets. When using the first formula, ...